Roubini ThoughtLab teamed up with SEI and other leading wealth industry firms to conduct a study, Wealth and Asset Management 2021: Preparing for Transformational Change. It looks at the changing demographics of wealth, from boomers to millennials, with very different needs, behaviors and ways of communicating. The study suggests that over the next 5 years, the impact of 5 megatrends “will be profound.” The following post focuses on megatrend #2: The rapidly evolving investor.

When SEI joined forces with Roubini and a number of other partners to develop a report on the 5 megatrends in the wealth management industry, I was particularly interested in megatrend #2: “The rapidly evolving investor.” Millennials are one of 3 key segments described in the report (the others being Generation X and baby boomers). But in typical millennial fashion, I want to give you my added opinion on some of the key takeaways about millennials – because isn’t that what the so-called “Me, Me, Me Generation” does?

There continues to be a focus on how to handle the huge transfer of wealth from baby boomers to the millennials over the next few decades. And many advisors look to technology as key to retaining those assets and serving the millennials who inherit that wealth.

Steve Scruton, President of Broadridge Advisor Solutions, is quoted in the study: “Forward-looking companies should implement technology plans designed to get ahead of the curve for dealing with millennials.” He focuses on the ability to effectively use digital marketing, such as social media and analytics, for prospecting and developing a relationship with younger prospects. Additionally, he points out that technology will be key to servicing your existing clients, from client management systems that facilitate a team structure for managing clients, to web-based reporting and portals for ongoing client contact.

While it is true that using technology will be key, what’s most important is that the business effectively tailors its service model to this younger demographic and leverages the technology to enhance and facilitate this new service model. A traditional advisory firm cannot just add technology and expect that to be the fix. It needs to first define its processes for serving younger clientele and then look for technology that supports those processes.

For example, if a firm purchases new planning software tailored to the planning topics of Generation Y, that’s great – but will the team know how to use that with the client? The firm would’ve been better off defining how it wants to change its service offering and planning process for millennials, and then reviewing different financial planning tools that it feels would fit into this new business model and enhance it.

Goals-based investing

As robo-advisor-type technologies continue to automate and commoditize investment advice, advisors feel the pressure to substantiate their value in other ways, outside of asset allocation and performance. One way financial advisors will be able to do this is through goals-based investing – a concept that investors have taken a liking to more and more. As the study notes, “Already a popular investment approach used by 51% of investors, goals-based investing will be used by almost two-thirds (63%) by 2021. …In fact, 40% of investors explicitly say that goal achievement is more important than rate of return.”

Goals-based investing is the practice of identifying the key goals of the investor and aligning an investment portfolio towards achieving those core objectives. It will be difficult for technology to replicate that process of goal identification because it requires a more consultative approach, getting investors to open up about their aspirations and concerns. By focusing on goals-based investing, along with quality financial planning services, advisors will do well in serving the evolving investor.

Generational misconceptions

Robo-advisors grew from the idea of “advice for all” – to engage “lower-end” investors underserved by financial advisors more interested in the top tier wealth in society. Millennials fit into this lower tier of wealth, and they are also digital natives more likely to use technology. So naturally, many felt the robo-advisors were pretty much made for this demographic.

Although I’ve never actually seen the hard numbers on what age demographics are leveraging robo-advice, I’ve always thought that these tools might fare better with Generation X and baby boomers, as they are getting more and more comfortable utilizing technology the same way millennials do (and have more substantial investable assets than millennials, too). And research is starting to prove out my theory. As Jon Stein, CEO and Founder of Betterment, says in the report, “It’s really astounding to see how similar the interaction of 60- to 70-year-old clients with our wealth product is to that of younger customers. Members of the older generation do not get enough credit for how willing they are to adopt technology.”

The point is that all generations are now natives of the digital world. Even though millennials grew up with technology, other age demographics are surrounded by it and looking for opportunities to leverage it to make their lives easier. As such, advisors who want to run sustainable businesses and continue to meet the needs of evolving investors for years to come (no matter the age) will need technology to help get them there.

Keeping up with the next generation

My focus on millennials is not just because I am one; rather, it’s because we tend to be forward-thinking, early adopters of change. By focusing attention on this group, the hope is that we’ll observe early indications of new trends that will eventually take hold and become a norm among all generations of investors. If we want to continue to remain competitive and relevant in this industry for years to come, it is in our best interest to anticipate what the “rapidly evolving investor” wants and meet those needs.

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